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Revised 990 Regulations

Revised 990 Regulations

November 5, 2011

Authored by: Nathan Boyce

Until recently, when an organization sought public charity status on its Form 1023 and received a favorable determination letter from the Internal Revenue Service recognizing it as exempt under Section 501(c)(3) of the Code, its public charity status (if granted) would be for a five-year “advance ruling period”. After this advance ruling period, the organization would make a separate filing to the IRS to establish public charity status based on satisfaction of one of the Support Tests. On September 7, 2011, final regulations were issued that change the timing and process of determining public charity status.  A brief description of the changes can be read here.

IRS Exempt Organization Newsletter 2011-17

October 25, 2011

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On October 21, the IRS released its Exempt Organization Newsletter, Issue Number 2011-17. Topics include the following:

  • Tax-Exempt Organizations Participating in the Medicare Shared Savings Program through Accountable Care Organizations
  • Earn CPE Credits at Nationwide Tax Forums Online
  • IRS Issues Guidance on Inflation Adjustments for 2012
  • Register Now for Fall Workshops for Small and Medium-Sized 501(c)(3) Organizations
  • Qualified Appraisal Rules Strike Again

    October 17, 2011

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    In a recent decision, the Tax Court granted the IRS’s motion for partial summary judgement on the basis that the taxpayer’s appraisal for a non-cash charitable contribution did not satisfy the “qualified appraisal” rules.  Friedberg v. Comm., TC Memo 2011-238 (Oct 3, 2011).  Section 170(f)(11)(C) of the Code denies a charitable deduction for non-cash contributions in excess of $5,000 unless the taxpayer-donor obtains a qualified appraisal of the property and attaches to its return for the tax year of the contribution the information about the property and the appraisal as the IRS requires.   Unfortunately, denial of a charitable deduction for a contribution of valuable property to a charity for failure to satisfy the qualified appraisal and other IRS donation substantiation rules is a common occurrence. 

    There are numerous cases and rulings denying the charitable deduction for failure to precisely comply with the IRS substantiation rules, including the qualified appraisal rules.   These cases may seem unfair to individual taxpayers, who are

    IRS Exempt Organization Newsletter 2011-16

    October 11, 2011

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    On October 4, the IRS released its Exempt Organization Newsletter, Issue Number 2011-16. Topics include the following:

  • Webinar: Reporting Employer Health Care Coverage on Form W-2
  • New Voluntary Worker Classification Settlement Program
  • Western Conference on Tax-Exempt Organizations
  • Register Now for Workshops for Small and Medium-Sized 501(c)(3) Organizations
  • Political Organization Filing System Unavailable October 8-10
  • Reminder: Renew PTINs Beginning October 15
  • New Guidance on Church Plan Determination Letter Requests
  • Click here to review IRS Newsletter Issue 2011-16.

    Economic Development, Right and Wrong

    October 6, 2011

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    Economic development organizations may be exempt if the assistance they provide is “targeted (1) to aid an economically depressed or blighted area; (2) to benefit a disadvantaged group, such as minorities, the unemployed or underemployed; and (3) to aid businesses that have actually experienced difficulty in obtaining conventional financing (a) because of the deteriorated nature of the area in which they were or would be located or (b) because of their minority composition, or to aid businesses that would locate or remain in the economically depressed or blighted area and provide jobs and training to the unemployed or underemployed from such area only if the economic development corporation’s assistance was available.” 1992 EO CPE Text G. Economic Development Corporations.

    This basis for exemption seems to be often misunderstood–many organizations seek

    IRS Guidelines for Reinstatement of Exemption

    September 28, 2011

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     In 2006, Congress amended Section 6033 to revoke the tax-exempt status of organizations required to file an annual Form 990, Form 990-PF, or Form 990-EZ, that fail to file for three consecutive years. The amended law also requires many organizations with less than $25,000 ($50,000 for tax years starting after January 1, 2010) in annual receipts to file annual informational reports (Form 990-N) —organizations that had never been required to file before.

     The IRS recently began to formally revoke exempt status for those organizations that failed to comply.  The IRS also issued guidance for organizations that have had their tax-exempt status revoked under the amended law in Notices 2011-43 and 2011-44.  An organization whose exemption has been revoked should apply for reinstatement the same way it would apply for an exemption (by filing Form 1023 or Form 1024), even if it did not have to apply for its original exemption. The

    IRS Exempt Organization Newsletter 2011-15

    September 19, 2011

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    On September 12, the IRS released its Exempt Organization Newsletter, Issue Number 2011-15.  Topics include the following:

  • New Round of Outreach to Small Employers and Practitioners about the Small Business Health Care Tax Credit
  • Disaster Relief Resources for Charities and Contributors
  • Webinar: International Activities of Domestic Charitable Organizations
  • Final Regulations Implementing Redesigned Form 990
  • 2011-2012 Priority Guidance Plan
  • Monthly Update to List of Automatically Revoked Organizations
  • Tips for Contributors
  • Click here to review IRS Newsletter Issue 2011-15.

    Charitable Vendors

    September 9, 2011

    Categories

    Charitable Vendors

    September 9, 2011

    Authored by: Nathan Boyce

     

    One commonly held misconception regarding charities is that an organization can qualify under section 501(c)(3) on the grounds that it provides needed services to other 501(c)(3) organizations. In a seminal case in Rev. Rul. 72-369, an organization sought 501(c)(3) status on the grounds that it provided consulting services to 501(c)(3)s for a fee set at cost. The IRS ruled that paid consulting services is a commercial activity carried on for profit and the fact that the fee was set at cost was not sufficient to remove the commercial aspects. In GCM 37257, the general counsel declared that such service-providing organizations will only qualify themselves under section 501(c)(3) if the services they provide to the other 501(c)(3)s are “substantially below cost.”

     Recently, in PLR 201131025, the IRS examined an organization the provided classroom supplies to school teachers. The organization operated

    Solicitation Disclosure

    September 2, 2011

    Categories

    Solicitation Disclosure

    September 2, 2011

    Authored by: Nathan Boyce

    There are consequences to improperly representing that a donation is deductible. Generally, Section 6113 requires non-501(c)(3)s that are seeking donations to conspicuously disclose “that contributions or gifts to such organization are not deductible as charitable contributions for Federal income tax purposes.’” A $1,000 fine is imposed up to $10,000 for the year for failure to include such language. For intentional failure, the daily fine is the greater of $1,000 or 50 percent of the aggregate cost of the offending solicitations–with no maximum for the year. To be clear, this is not advice for pending 501(c)(3)s–that’s another blog topic–but for others. For example, if my (c)(7) social club asked for donations for my kids’ psychological rehabilitation,

    School Fundraising – Resist the Urge to Earmark

    There are numerous charities established to raise funds to support the extra-curricular activities or tuition of students.   In most cases, parents and students help raise funds by volunteering their time (e.g., working at concession stands, selling coupon books or candy, ect).   In order to be fair to those who volunteer, there is often an urge to earmark the funds raised to those students who volunteered (or whose parents volunteered) to be available by those students to pay for their extra-curricular activities or tuition.   However, as the charity discovered in PLR 201130012, such earmarking results in an improper private benefit that resulted in revocation of tax-exempt status.  Therefore, charities formed to raise funds for students must resist the urge to earmark funds for particular students and instead are used to benefit a broad class of students.

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